a. Calculate the risk-adjusted on-balance-sheet assets of the bank as defined under Basel II.

b. Calculate the risk-adjusted off-balance-sheet assets of the bank as defined under Basel II. Calculate total capital required for both off-balance sheet assets and on-balance sheet assets.

c. What type of risk the aforementioned capital adequacy ratio is accounting for? Is it a concern for the regulators?

d. How does the prudential framework manage the liquidity risk of regulated institutions?
 

Thrift and Savings Bank has the following balance sheet (in $ millions). Assets Liabilities and Equity Deposits Subordinated debt (>5 years) Cash 20 Mortgage Loans 50 Consumer Loans 70 Total Assets 140 Liabilities and Equity In addition, the bank has $20 million in commercial standby letters of credit to a BB rated corporation and $40 million in 10-year foreign exchange forward contracts that are in the money by $1 million. Conversion factors are given below: 5 to 10 year foreign exchange forward contracts 1 to 5 year foreign exchange forward contracts Commercial standby letters of credit (BB rated) 130 5 5 140 7.5% 5% 100%